Economic Inequality and Intergenerational Transfers: evidence from - PowerPoint PPT Presentation

Economic Inequality and Intergenerational Transfers: evidence from Mexico Iv´ an Mej´ ıa-Guevara imejiag@hsph.harvard.edu Harvard School of Public Health Ninth Meeting of the Working Group on Macroeconomic Aspects of Intergenerational Transfers, Barcelona June 3 2013 1 / 50

Acknowledgement National Institute on Aging: NIA, R37-AG025488 and NIA, R01-AG025247 Andrew Mason Ronald Lee IDRC/ECLAC Edgard Rodr´ ıguez, Tim Miller, Paulo Saad 2 / 50

Outline Introduction Methodology NTA by SES: Mexico 2004 NTA by SES: Mexico 1994 vs. 2004 Conclusions Appendix 3 / 50

Introduction 4 / 50

Per capita labor income and consumption: 23 economies around 2000 Source: Tung (2011). 5 / 50

Lifecycle deficit: Mexico 2004 2004 1.2 Relative to mean YL 30-49 .8 .4 0 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 75+ Age Labor income Consumption Source: Mej´ ıa-Guevara (2011). 6 / 50

Funding sources for persons 65 and older Source: Mason and Lee (2011). 7 / 50

Income inequality It has the potential to undermine the economic prosperity of nations and their political stability (Stiglitz, 2012) - “There is little income mobility – the notion of America as a land of opportunity is a myth.” - “And America has more inequality than any other advanced industrialized country...” Latin America has been traditionally regarded as the most unequal region of the world (Gasparini et al., 2010; Gasparini and Lustig, 2011) “Rent seeking: Mexico” - Extreme wealth and corporate control in the business sector: Monopolistic corporations (PEMEX, TELCEL, TELMEX, TELEVISA, etc...) - Groups that were part of Mexico’s corporatist inheritance: Unions (Education, PEMEX, Electricity, etc...) 8 / 50

Inequality in Latin America and the World Inequality in Latin America and the world Gini coefficients Share of deciles in income distribution Countries around the world 65 50 60 Latin America Africa 55 40 Asia 50 30 45 Eastern Europe & Central Asia 20 40 Developed 35 10 30 0 25 1 2 3 4 5 6 7 8 9 10 20 Latin America Rest of the world Source: Gasparini et al . (2010). Source: Gasparini (2004) based on Bourguignon and Morrison (2002). 9 / 50

Inequality in Latin America A map of inequality in Latin America Gini coefficient Distribution of household per capita income Around 2006 MEX RDO HND GUA NIC ELS PAN CRI VEN COL ECU BRA PER BOL PAR CHI ARG URU < 46 46 - 48 48 - 50 50 - 51 51 - 53 53 - 54 54 - 56 56 - 58 > 58 No data 10 / 50 Source: Gasparini et al. (2010).

BMV: Cencentration Source: Perezcano (2011): http://www.capitalprivado.com.mx/2011/05/01/ 11 / 50

Good news? Reduction of inequality in Latin America during the 2000s (Gasparini and Lustig, 2011) Factors behind a decreased in inequality (Gasparini and Lustig, 2011). 1. Fall in the earnings gap of skilled/low-skilled workers, 2. Increase in government transfers targeted to the poor. 12 / 50

Income Inequality in Mexico Inequality in Mexico Gini coefficient 1984-2006 using alternative income definitions ���� ���� ����� ���������������� ����� ����� ����� ����� ���� ����� ����� ����� ����� ����� ����� ����� ����� ����� ����� ���� ����� ����� ����� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ����������������������� �������������������� Source: Esquivel, Lustig and Scott (2010). 13 / 50

Progresa/Oportunidades and other subsidy programs 40,000 35,000 30,000 Million pesos (2005=100) 25,000 20,000 15,000 10,000 5,000 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Other focalized subsidies Generalized subsidies Progresa-Oportunidades Source: Own wint information from SHCP. 14 / 50

Methodology 15 / 50

Socioeconomic status (SES) Stratum Level of education Years of education (completed) I Non, kindergarten, or incomplete primary [0, 6) II Primary, or incomplete lower secondary [6, 9) III Lower secondary, or incomplete upper secondary [9, 16) IV Undergraduate, Master, or PhD 16 or more 16 / 50

Assumptions Flow identity: C ( x ) − Y l ( x ) = τ + ( x ) − τ + ( x ) + Y a ( x ) − SY l ( x ) . Flow identity (subpopulation): C ( x , s ) − Y l ( x , s ) = τ + ( x , s ) − τ + ( x , s ) + Y a ( x , s ) − SY l ( x , s ) . 17 / 50

NTA by SES: Mexico 2004 18 / 50

Lifecycle deficit: Mexico 2004 2004 1.2 Relative to mean YL 30-49 .8 .4 0 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 75+ Age Labor income Consumption Source: Mej´ ıa-Guevara (2011). 19 / 50

Lifecycle deficit by SES: Mexico 2004 I II 2.4 2.4 2 2 Relative to mean YL 30-49 Relative to mean YL 30-49 1.6 1.6 1.2 1.2 .8 .8 .4 .4 0 0 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 75+ 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 75+ Age Age Labor income Consumption Labor income Consumption III IV 2.4 2.4 2 2 Relative to mean YL 30-49 Relative to mean YL 30-49 1.6 1.6 1.2 1.2 .8 .8 .4 .4 0 0 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 75+ 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 75+ Age Age Labor income Consumption Labor income Consumption * dashed lines represent national averages. Source: Own based on ENIGH 1994 and 2004. 20 / 50

Per capita age reallocations: Mexico 2004 National 1 Relative to mean YL 30-49 .5 0 -.5 -1 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 75+ Age LCD TG TF ABR Source: Mej´ ıa-Guevara (2011). 21 / 50

Per capita age reallocations by SES: Mexico 2004 I II 3 3 2.5 2.5 Relative to mean YL 30-49 2 Relative to mean YL 30-49 2 1.5 1.5 1 1 .5 .5 0 0 -.5 -.5 -1 -1 -1.5 -1.5 -2 -2 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 75+ 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 75+ Age Age LCD TG TF ABR LCD TG TF ABR III IV 3 3 2.5 2.5 Relative to mean YL 30-49 Relative to mean YL 30-49 2 2 1.5 1.5 1 1 .5 .5 0 0 -.5 -.5 -1 -1.5 -1 -2 -1.5 -2 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 75+ 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 75+ Age Age LCD TG TF ABR LCD TG TF ABR Source: Own based on ENIGH 1994 and 2004. 22 / 50

Funding sources for young and the elderly by SES: 2004 Stratum 1 Stratum 2 100 100 90 90 80 80 70 70 % of total consumption % of total consumption 60 60 50 50 40 40 70.5 62.7 30 30 45.9 46.1 20 40.7 20 35.0 30.7 26.2 26.6 10 10 20.9 11.4 8.8 0 0.0 0 0.5 -12.4 -18.1 -10 -10 -20 -20 -30 -30 0_19 65+ 0_19 65+ YL TF TG ABR YL TF TG ABR Stratum 3 Stratum 4 100 100 90 90 80 80 70 70 % of total consumption % of total consumption 60 60 50 100.8 50 90.7 40 40 83.2 75.4 30 30 20 20 28.4 10 10 16.6 18.4 18.4 9.5 0 1.5 1.9 -0.1 5.0 1.9 0 -11.7 -10 -10 -34.8 -20 -20 -30 -30 0_19 65+ 0_19 65+ YL TF TG ABR YL TF TG ABR Source: Own based on ENIGH 1994 and 2004. 23 / 50

NTA by SES: Mexico 1994 vs. 2004 24 / 50

Labor income by age: 1994 vs. 2004 Labor Income 1 Relative to mean YL 30-49 .8 .6 .4 .2 0 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 75+ Age 1994 2004 Source: Own based on ENIGH 1994 and 2004. 25 / 50

Labor income by age and SES: 1994 vs. 2004 1994 2004 4.5 4.5 4 4 Relative to mean YL 30-49 Relative to mean YL 30-49 3.5 3.5 3 3 2.5 2.5 2 2 1.5 1.5 1 1 .5 .5 0 0 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 75+ 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 75+ Age Age I II III IV National I II III IV National Source: Own based on ENIGH 1994 and 2004. 26 / 50

Total consumption by age: 1994 vs. 2004 Consumption 1 .8 Relative to mean yl 30-49 .6 .4 .2 0 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 75+ Age 1994 2004 Source: Own based on ENIGH 1994 and 2004. 27 / 50

Education spending by age: 1994 vs. 2004 Private and public .2 Relative to mean yl 30-49 .1 0 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 75+ Age 1994 2004 Source: Own based on ENIGH 1994 and 2004. 28 / 50

Education spending by age and SES: 1994 vs. 2004 1994 2004 .8 .8 Relative to mean yl 30-49 Relative to mean yl 30-49 .6 .6 .4 .4 .2 .2 0 0 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 75+ 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 75+ Age Age I II III IV National I II III IV National Source: Own based on ENIGH 1994 and 2004. 29 / 50